Superannuation - Anti Detriment Payments
What is an anti-detriment payment?
An anti-detriment payment is an additional lump sum amount which is paid out with the superannuation account balance of a deceased member. This payment can only be made to a spouse or child (including an adult child) of the deceased member. In some circumstances a death benefit paid to the estate of a deceased member can include the anti-detriment payment. If the proceeds of the estate (or a portion of the proceeds) will be distributed to a spouse, former spouse or child, and sufficient proof is provided to the superannuation fund, the anti-detriment can be included in the death benefit payment.
Why was the payment introduced?
Prior to 1 July 1998, death benefits paid to dependants were tax-free up to the deceased member’s Reasonable Benefits Limit (RBL). The Government then introduced contributions tax but did not want to disadvantage death benefits. As such the anti-detriment payment was introduced as compensation for the tax paid by the deceased member on their superannuation contributions.
Are payments made by all superannuation funds?
Anti-detriment payments are not compulsory and as such not all superannuation funds pay antidetriment payments. In most cases you will need to request the payment at the time of death, as it will not be paid automatically. Your financial adviser can provide guidance when required.
When may the payment be made?
An anti-detriment payment can only be made when:
An accumulation death benefit is paid as a lump sum,
A pension is commuted to a lump sum on the death of a pensioner (or reversionary pensioner) within the prescribed period (the prescribed period is generally the later of three months from the grant of probate/issue of letters of administration, or six months from the date of death), or
The death benefit is paid as a death benefit pension and a subsequent lump sum death benefit is made within the prescribed period.
An anti-detriment payment is not available when:
A death benefit is paid as a pension and no lump sum withdrawals are made within the prescribed period.
A member takes a terminal illness benefit prior to death.
How is the payment calculated?
Often superannuation funds are unable to track the total amount of contribution taxes paid, particularly where benefits have been rolled over from other superannuation funds, so the ATO introduced a formula to help determine the anti-detriment payment.
In calculating the anti-detriment amount, the trustee of the superannuation fund is also able to take into account the earnings that would have accrued on the amount of tax paid on the contributions if those contributions had not been subject to tax. Alternatively the superannuation fund auditor can certify the amount the benefit has been reduced due to contributions tax paid since 1 July 1988.
Example
Ryan, aged 48, passed away and a lump sum death benefit is to be paid to his widow, Jan. This lump sum death benefit is made up of his $200,000 superannuation account balance.
Ryan’s financial adviser contacts the superannuation fund and is advised that they do pay antidetriment payments. The superannuation fund assesses Ryan’s superannuation account and using the ATO’s method of calculation is able to pay an additional $35,294 to Jan as an anti-detriment payment. As Jan is Ryan’s spouse this money is received tax-free. The actual anti-detriment payment may differ depending on the superannuation fund.
What tax is payable on the payment?
Lump sum payments from superannuation are broken into two components:
Taxable component
Tax-free component
An anti-detriment payment will always form part of the taxable component of a death benefit. Where the death benefit is being paid to a spouse or minor child, the entire benefit, including the anti-detriment payment, will be tax-free as these beneficiaries are dependants for tax purposes and always receive a superannuation death benefit tax-free.
However, where the anti-detriment payment is made to a non-dependant for tax purposes (for example an adult child), it will be taxed at between 15% and 30% plus Medicare levy in line with the tax normally payable by a non-dependant beneficiary on the taxable component of a death benefit.
SMSF’s and anti-detriment payments
An issue for SMSF trustees is how to fund an anti-detriment payment. It cannot be sourced from another member’s account and SMSF’s may not borrow money for more than 90 days. Therefore, SMSF trustees should consider the establishment of fund reserves so as to provide an account from which to pay any future anti-detriment liabilities.
To discuss your superannuation and whether your fund offers anti-detriment payments, contact us on 03 9935-5244 to make an appointment at our Little Collins Street office in Melbourne CBD.
